Harry J. Sommer
President & Chief Executive Officer at Norwegian Cruise Line
Well, thank you, Jessica, and good morning, everyone. Thank you all for joining us today.
Before we get into prepared remarks, if you haven't already heard the good news, I'd like to congratulate Jessica on her recent appointment to Chief Strategy Officer for Regent Seven Seas Cruises. I'd also like to welcome Sarah Inman, who recently joined the company, last week, as our new Head of Investor Relations and Corporate Communications. We are very pleased to have Sarah on the team, and I'm sure many of you will have the chance to meet her in the weeks and months ahead. As she ramps up on the company, Jessica will continue to be available in the interim to ensure a smooth transition. Congratulations to Jessica and congratulations to Sarah.
Now, in turning to results, I'm pleased to share with you this morning that we achieved strong third quarter results generating record revenue and meeting or exceeding guidance on all key metrics. I have to attribute this success to the hard work and dedication of our incredible team members, both on our ships and our offices worldwide.
We also continue to make good progress on both defining our longer term strategic vision and executing on the near-term priorities I shared last quarter, which are shown on Slide 5. First, our team is focused on capitalizing on the strong demand environment for cruise to ensure we stay on our optimal booking curve, while maximizing pricing and onboard revenue generation. On a 12-month forward basis, our book position continues to be at record levels within our optimal ranges and at higher prices. While we are very pleased with our progress so far in building our book for 2024 and beyond, we are also keeping a close eye on the evolving macroeconomics and geopolitical landscape and are ready enable to adapt if needed.
The next priority is rightsizing our cost base through our ongoing margin enhancement initiatives. Since we kicked off this initiative last year, we have seen sustained momentum with three consecutive quarters of improvement in our operating cost metrics. And what's even more encouraging is that we have done this without impacting the guest experience, as evidenced by our continued strong guest satisfaction level, continued strong onboard future cruise sales and guest repeat rates, and continued high onboard spend. These results have been driven by a palpable change in culture, with team members across the globe, shipboard and shoreside embracing the challenge to find new and innovative ways to accelerate our margin recovery, while still preserving our long-term brand equity.
To give you just one example. Last month, we took the time to tour Norwegian Jewel ahead of the scheduled 2025 dry dock. We walked through each planned project while on board, stopping to get real-time guest feedback to help identify the highest value opportunities. The result of this more methodical approach resulted in not just lower cost, but also shortened the expected length of the dry docking self by nine days, which will allow us to return the shift to revenue generating service that much faster. All in all, the changes we made to the dry dock plan are expected to result in over 20% CapEx savings and a few million dollars of incremental revenue versus our original plan. It was a day well spent.
While we have less of the lowest hanging fruit still available at this point, several opportunities like this remain untapped. I want to reassure you that we are committed to keeping the same relentless focus, vigilant and balanced approach to identifying, evaluating and executing on opportunities in a methodical manner. This is not a one-off exercise to us, but rather something we are embedding in the DNA of our entire organization.
This leads us to our next priority, which is to make strategic and intentional enhancements to our offerings and guest experience. With the continued keen focus on costs, we are still making smart, high-return generating modification and investments in products and service offerings. For example, in the fourth quarter, we are launching Air Choice for Norwegian Cruise Line. This will allow guests to upgrade from our current bundled air offering in which guests are signed flight at the lines discretion and allow them to choose their specific preferred flights for a fee. This is expected to have a dual benefit of improving both guest satisfaction and generating incremental revenue. We are also making disciplined investments in technology for better websites and mobile apps to Universal Starlink High-Speed Internet across our entire fleet by the end of 2024.
Our high-value targeted efforts to provide an excellent guest experience have not gone unnoticed. In fact, Norwegian Cruise Line was just named the top net mega-ship cruise line by Conde Nast Traveler in their 2023 Readers' Choice Awards. Readers voted for their top choices based on several categories, including service, food, accommodations and sustainability in Norwegian Cruise Line 1. So it's clear that our product continues to resonate strongly with our guests.
Turning to the fourth priority on the list. After welcoming Oceania Vista in May, in August, we took delivery of the incredible Norwegian Viva, the second ship in the game-changing prima class and we're not done yet. This year is the first year in our history in which we are introducing one ship for each brand, all of which were built with our incredible partners at Fincantieri in Italy. In just a few weeks, I will be heading back to Italy to take delivery of Regent Seven Seas Grandeur, which you can see on Slide 6. Grandeur rounds out the highly successful Explorer-class for Regent, taking luxury cruising to another level. The reception for these ships continues to be overwhelmingly positive across the board, whether it's from our valued travel agents, our loyal pass guests or guests trying one of our award-winning brands for the very first time.
The disciplined addition of newbuilds continues to be a key cornerstone of our strategy as they are expected to be meaningful drivers of the company's future earnings growth and margin expansion. Our newbuild pipeline, which you can see on slide 7, represents a 5% capacity growth CAGR from 2019 to 2028, and we are confident in our ability to absorb this growth profitably. We remain in talks with our shipbuilding partners to embark on a new vision for all three of our brands and plan to continue to add new ships across our brands at the right time and at the right interval. But for now, after the delivery of Grandeur this month, we have no additional ship delivery scheduled until spring of 2025, and in the interim, we expect to benefit from both organic growth as well as the annualization of the 2023 newbuilds next year.
The final priority on the list, shown on slide 8, is charting a path to reduce leverage and derisk the balance sheet. While the return to investment grade like financial position will be a multiyear process, we continue to expect a significant organic improvement in our net leverage in the intermediate term, driven by our expected cash flow generation and normal course debt amortization payments.
With new leadership and perspectives across our organization, we have embarked on a review of our entire business, taking a fresh look at all aspects of our strategy. We are embracing change while preserving what makes it special, and we are committed to take back a leadership position not just in cruise, but in the broader travel, leisure and hospitality sector.
In our view, no idea is too big or too small. We have a full vision for what the future holds for Norwegian, so we're taking the time to be thoughtful and thorough as we identify opportunities to ultimately drive more value for our shareholders. Our goal is to share this plan with all of you sometime in spring of next year, along with associated multiyear financial targets.
Now, turning to Slide 9. As we focus on closing out the year strong, successfully executing on our near-term priorities and defining our long-term strategic plan and vision for the future, our team is more united to energize now more than ever. In fact, earlier this month, we held our global conference in Miami, the first time in several years that we have brought together leaders across all three of our amazing brands in person. This year's, the next gen, was all about the future and how we can reach further individually and collectively, to accelerate momentum as we move into 2024 and beyond. It was an opportunity to read the team together to spur innovation and collaboration and ensure that across the organization, we are overline and marching towards the same goals as we strengthen the foundation for sustained profitable growth. This served to further cement my confidence that we are taking the right steps today to best position the company for the future.
Now, shifting our discussions to current bookings, demand and pricing trends shown on Slide 10. We achieved record revenue of $2.5 billion in the third quarter, an increase of 33% over the same period in 2019. The strong consumer demand environment resulted in load factors of 106% in the third quarter, while growing net per diems by nearly 8%, all while absorbing a 20% growth in capacity.
Before we get into operational details, in recent months, we have seen the devastation caused by both the wildfires in Mali and the escalating conflict in Israel. Our thoughts and prayers are with those impacted by these tragic events. Our priority remains the safety, security and well-being of our guests, team members and the communities we visit, and we have mobilized to modify impacted itineraries and help support relief efforts in both regions.
Starting with Hawaii, we were uniquely impacted compared to our food peers given our unique year-round inter-island Hawaii offering, the only one in the industry with our US flagged vessel Pride of America. When the wildfires began in August, we quickly modified certain itineraries to avoid straining local resources with the guidance and encouragement of a responsible return from both the Hawaiian Governor Josh Green and the Hawaii Tourism Authority, we resumed our scheduled calls to Kahului, Maui in early September.
As it occurred in the past with events of this nature, which received significant attention and media coverage, we did experience a temporary slowdown in close-in bookings for Hawaii sailings. This impacted not only Pride of America, but also certain sailings on Norwegian Spirit also based in the region for much of the fall, which in total represent approximately 6% of our capacity in the fourth quarter. Demand has steadily improved in recent weeks and while not quite fully recovered yet, it's on the right trajectory and now approaching normalized levels. While we expect some lingering impact in the first quarter, Hawaii only accounts for approximately 4% of capacity in this period, as well as for the full year as Norwegian Spirit repositions outside of the region in December.
Turning to Israel. Once the conflict began to escalate, we canceled all calls to Israel for the remainder of the year. We recently made the preemptive decision to cancel calls in Israel in 2024 as well, and our brands are currently working diligently to modify itinerary and communicate these changes to guests.
One of the benefits of our industry is that cruise ships are easily movable assets, so we can pivot as needed and still offer incredible itineraries for our guests to enjoy. However, we are seeing both elevated cancellation activity and lower new bookings for this region, primarily for close-in sailings as the conflict is ongoing and still front and center in the consumer psyche. Prior to the conflict, approximately 7% of capacity in the fourth quarter of 2023 and 4% of capacity for the full year 2024 had visits to the broader Middle East region. Breaking 2024 down a bit further, very little capacity is in this region early in the year, only about 1% of capacity in Q1.
That said, we are encouraged by the strength in our book position for 2024 and beyond, which on a 12-month forward basis remains in a record position at our optimal levels and at robust pricing levels. Onboard revenue generation, which we view as our single best real-time indicator of consumer confidence also continues to knock it out of the park.
During the quarter, gross onboard revenue for Passenger Cruise Day was approximately 30% higher than the comparable 2019 period. This is driven not only by strong demand but also through our multiyear effort to enhance our bundled offerings and pull forward and pre-sell more revenue before a guest ever step foot on the ship, effectively expanding the sales cycle and getting more of the consumers bottle over time.
For the third quarter, pre-sold revenue on a per passenger day basis was up over 80% higher than in 2019 with nearly all of our guests purchasing something pre-cruise on their own or through our bundled offering. Not only does this lead to higher spend by guests over the course of their entire journey, but it also pulls forward cash inflows for the company. This is one of the reasons why, as you can see on Slide 11, our advanced ticket sales balance increased nearly 60% in the third quarter versus 2019, far outstripping capacity growth of 20%.
Before I turn the call over to Mark, I'd like to provide an update on our global sustainability program, Sail & Sustain, in which Slide 12 outlines key accomplishments and milestones. Since we last spoke, we partnered with the Global Maritime Forum to advance our shared mission of driving a positive change for the industry, environment and society. We also joined its flagship initiative, the Getting to Zero Coalition, a powerful alliance with more than 200 organizations within the maritime, energy, infrastructure, and finance sectors committed to supporting the maritime industry in its journey towards full decarbonization by 2050.
I'm also proud to share that we were recently recognized by Forbes in its World's Best Employers list for 2023. Our team members are, by far, our most important resource, and we are committed to their continued development and well-being.
With that, I'll now turn the call over to Mark for his commentary on our financial results and outlook. Mark?
